The "Dutch Disease": Theory and Evidence

The term “Dutch Disease” originated in the Netherlands during the 1960s, when the high revenue generated by its natural gas discovery led to a sharp decline in the competitiveness of its other, non-booming tradable sector. Despite the revenue windfall the new discovery brought, the Netherlands experienced a drastic decline in economic growth. This economic paradox has since been recognized as the situation in which a booming sector adversely affects the performance of other sectors of an economy, and in particular, the non-booming tradable sector. In the past two decades, a sizable literature on the Dutch Disease has examined the commodity booms experienced by some countries. The petroleum boom from 1973 to 1979 produced the most generally significant consequences.